Wealth Transfer Discussion Continued…

I suspect very few people actually see the comments on my blog posts – due to the style of blog. Here is one comment worth re-posting: Paul Schervish’s response to my rather biting commentary on his work earlier this week – along with my own mea culpa! I try to entertain, expose, and educate through my posts but there are times in which the “uncensored” part of the blog unintentionally or unfairly hurts others. For that I apologize to Professor Schervish! Of course, he still has to back up his work and as you will note at the end of Paul’s response below, he is coming out with new estimates – which we should all be looking forward to seeing!

Response from Paul Schervish, Center on Wealth and Philanthropy at Boston College.
Jonathan has stumbled upon old news-say almost 8 years ago. There was a story in Chronicle on Philanthropy and our response by e-newsletter http://www.bc.edu/content/dam/files/research_sites/cwp/ssi/vol10.html. We discovered this problem and were in midst of writing an explanation when the Chronicle article came out. Turns out that the wealth transfer predicted for 1998 through 2017 is coming true and more than coming true (heirs alone will receive the $13 trillion we predicted for heirs, taxes, bequests, and settlement costs together! So wealth transfer is exceeding our middle 2% estimate. And charitable giving, especially during lifetime also increased until the Great Recession. What isn’t happening is the measured distribution to charitable bequests.

However, from that time forward, we readily stated in talks and in responses to queries that charitable bequests are not occurring as the model predicted. We knew that and what Jonathan writes as expose is, as I said, old news. To predict bequests we took each wealth group from the middle to late 1990s and then modeled the level of bequests for each wealth level (see Russell’s first chart). What happened is what Warren Buffett did: began to transfer to foundations and direct charitable giving what he planned to leave as charitable bequests in his estate. The data shows that in the 2000s there was great increase in foundation formation, donor advised funds, and lifetime giving (see Russell’s second chart). Our concern about the 2000-2001 NASDQ drop, recession, and 911 that we cite in our newsletter, it turns out was not as telling as what we discovered later about foundation formation and contributions to foundation.

People who were financially secure changed behavior from the 1990s and started and filled foundations with the money liquidated from the entrepreneurial growth, sale of firms, and public offerings. Until the around 1999 the amount going to bequests each year was about the same amount going to foundations (Russell has incline in charitable bequests correct for 1990s). After that date foundation growth skyrocketed and not as much was left in estates for charitable bequests—even though on average gifts to foundations or DAFS is still the major destination for charitable bequests). Simply change in behavior. In fairness to Jonathan and Russell, we have presented this information at conferences but have not published this finding.

Still, a courtesy would have been for both Jonathan and Russell to contact us for an explanation before questioning our work with an outdated criticism. We could have provided the answer about bequests, namely, as I said, foundation formation and distribution of assets to foundations and DAFS as well as life-time giving which is now deemed substantially greater in the post-recession by some reports than the amount of individual giving provided by GUSA. This would have made for a more informed and helpful blog.

But we do make allowances for this in our soon to be released wealth transfer model. The new model takes into account the question “where have the bequests gone?”

(As an aside, let’s think about all the billionaires (both who have and have not made the giving pledge), not to mention hecta-millionaires, who are yet to settle their estates before the 2052 deadline approaches.)

As to the possibility of charitable bequests being put more on the map, Legacy Leaders’ Chris Heldman (cheldman@legacyleaders.com) has argued and shown that bequests are still low hanging fruit and charitable organizations do not have or commit the resources to do large scale bequest requests except from their top prospects. Obtaining committed charitable bequests for charities is something for which Legacy Leaders has a talent, method, and proven track record demonstrated by its bequest accomplishments for major charities around the US and Canada (see insightful comment by Michael Rosen).

Finally, back when Robert Sharpe served with John Havens and me on the methodology advisory board for GUSA, Sharpe provided an answer to part of the discrepancy. He sought to persuade the methodology advisory group that smaller bequests by lower wealth individuals not captured in IRS data led to a value of bequests approximately double ($35-40 billion) the approximately $20 billion reported by GUSA.

A new Wealth Transfer Model with new and updated data, modules, and estimate will be published soon. This new model takes into account giving to foundations and other lifetime giving, and provides a lower estimate of charitable bequests. We always said that behavior on the part of charities could prove our estimates false in obtaining more or less lifetime giving and charitable bequests than we predicted.

We would be grateful if Jonathan could offer us a space to summarize the new wealth transfer model estimates after we announce findings from the forthcoming updated and improved wealth transfer study.